Asia

Reports

Under current global economy, energy sustainability has become an important consideration in meeting the current national energy needs. Based on this premise, the Indonesian National Committee World Energy Council has chosen the energy sustainability as the focal point for its National Energy Congress 2004.

The main conclusion of the National Energy Congress 2004 is that to achieve energy sustainability there needs to be appropriate policies for the energy sector to conduct market reform, encourage energy efficiency, provide affordable access, and promote renewable energy and to ensure minimum environmental impacts for the society.

From two days discussion, the Congress draws the following conclusions:

1. Energy security is a critical issue for the world as well as Indonesia. WEC survey shows that coal, natural gas, hydro and nuclear reserves are available for long term global energy supply. For the coming years, fossil fuel is still a major source of energy; and to meet environmental constraints, it requires to develop less costly cleaner fossil fuel technology. In addition, the current global warming issue warrants us to promote more renewable energy sources. Therefore it is important to keep all energy options open. For Indonesia, several principal policies on energy to intensify the search of new resources of energy; diversify to various energy sources other than oil; and to conserve energy at its source as well as in its final use, are required to address the issue. Emphasize should be put on the security of domestic energy supply, and to utilize domestic energy, particularly coal and gas, to generate maximum value-added for the national economy. The government needs to advance deregulation and restructuring of the oil and gas, as well as electricity sectors orderly with acceptance and full support of the public.

2. The fact that only about 50% of Indonesia population has access to modern energy mandates the Government to find solutions to reach acceptable sustainable condition. This also dictates that the market reform must be done in step by step basis using a pragmatic approach. Single Buyer model in this case may provide a better market arrangement for its simplicity yet gives the desired benefits such as supportive investment climate, clear and transparent regulatory framework at minimum cost and risk which consequently may address the problems of energy security of supply. However, the possibility of monopoly power arising from the Single Buyer model should be handled accordingly. Indonesia must also be aware of stiffer competition in getting investment in energy sector either at regional or global level. It is imperative that the market reform in Indonesia has to ensure creating favorable environment that is attractive to investments.

3. Energy market reforms should be done broadly to include legal, social, infrastructure and environmental issues. A blend of market and regulated features may bring competition and deliver benefits similar to more complex designs. Competition should be seen as a contestability tool for new capacity additions, new merchant lines, and local distribution companies while keeping other issues still under regulated regimes. Energy security and access to energy for the poor should become among the objectives of the market reform. The reform may not necessarily invoke the subsidy in the sector. A form of targeted subsidy covering fixed cost of providing energy may still be required to protect the poor. Apart from the market reform, the efforts in increasing end use efficiency (driven by correct pricing) and improving performance of generating plant (driven by competition) should not be overlooked, as they may save a substantial amount of required investment fund.

4. Clear energy regulations and regulator's roles and responsibilities as well as its independency are important for the development of sound energy sector in Indonesia. Given the current state of the Indonesian energy regulators and regulations, it is required to have more regulatory certainty, remove conflicting regulations, reassess of independency of regulators, and finalize related government regulations for further implementation of the energy market reforms.

5. Measures for security of energy supply required for sustainable energy development in Indonesia are: i) oil fuel consumption should be reduced; (ii) utilization of natural gas and coal should be increased; (iii) clean coal technology and its implementation should be encouraged. Various strategies to perform such measures require a comprehensive, strong as well as inter-sectoral and inter-ministerial coordination in energy planning and policy development.

6. Energy security is a major concern of all ASEAN Governments and provides the primary reason for regional cooperation. Current plan to develop ASEAN gas and electricity grid under the umbrella of regional cooperation may help Indonesia in enhancing its energy security from regional integration. Such integration is a key to attract investments because regional markets are larger and more secure.

7. Indonesia should further support the renewable energy promotion as has been agreed under ASEAN cooperation in the form of targeted installed capacity either through fiscal, financial and technical incentives in addition to Indonesia's current policy on grid access, power purchase and pricing assurances. Moreover, renewable energy should be considered as a part of energy policy which at the same time addresses environmental issues. It is to be noted that renewable energy may be competitive to conventional energy sources if considered at its full fuel costs.

8. Various developments in efficient technology, alternative energy sources, storage and interfuel substitution technology to achieve sustainable development have been in place and will continue to evolve. Such developments will play a vital role in securing energy security and conserving local and global environment. Various efforts have been carried out by several institutions in Indonesia to develop and assess new technologies that utilize local advantages and circumstances of abundant bio-resources, stranded gas and lignite, such as biodiesel, integrated gas-to-liquid process technology, mine-mouth power plants, briquette or bio-briquette for small scale industries and domestics. The government should support such initiatives by providing clear policies and appropriate incentives considering that timely investment on technology will help advance national economic growth and sustainable development.

9. The introduction of regional autonomy is one important reason for Indonesia to move from centralized to decentralized system in its energy development. A decentralized system of energy development recognizing cost differentials in energy production including partnership of public and private players will create the right incentives to meet the energy challenge that Indonesia faces.

10. Accessibility to energy for the rural household is very important to improve the welfare of the society. Currently the funding from Government and donors are limited to be able to cover around 42% un-electrified household in Indonesia. Hence, strong collaboration amongst stakeholders (government, donors, NGOs, business entities, financing institutions, communities, etc.) is required to promote market driven approach of rural energy service provision. In fact, an innovative and sustainable mechanism to finance rural energy services based on community-run energy service and improved market infrastructure has actually been demonstrated to be viable. Such scheme can be expected as an alternative solution for increasing energy accessibility for rural household in Indonesia.

11. Studies on Indonesia long term energy planning performed by Pusat Informasi Energi, Department of Energy & Mineral Resources and KNI-WEC Working Group, and the Center of Energy Studies of University of Indonesia show several results as follows:

    • National energy consumption and electricity demand increases three folds during 2002 - 2020.

    • The share of natural gas and coal utilization will increase. However, oil will still be the predominant energy form, mostly for transportation and industry. On the other hand domestic crude oil production decreases. This situation will position Indonesia as net oil importer in the near future.

    • Coal and natural gas will be the main fuel for electricity production.

    • Geothermal and renewable energy cannot be left to the market for them to develop. If 24 x 60 MW of geothermal plants are forced into the Jawa-Bali system, the total system costs will increase by 0.7%.

    • Under presumed capital and fuel costs of various generation technologies, Nuclear power will not come into the picture until 2020 unless its capital cost is reduced to $ 1450/kW to make them competitive to coal and natural gas (calculated based on the oil price of 25 US$/barrel and excluded externalities).

The KNI-WEC wishes to thank all the distinguished speakers and participants to share their view and opinion in the National Energy Congress 2004.